What is the Consensus Market View?

February 6, 2017

What is the Consensus Market View? Photo

Last week was fairly uneventful from a market data perspective, as all eyes continued to be glued on Washington and the almost constant coverage of the Trump administration. On the economic data side, the unemployment report confirmed the continued creation of new jobs. During January, 237,000 new jobs were added compared to an expectation of 175,000. Despite the strong gain in new jobs, the unemployment rate ticked up by 0.1% to 4.8%, and average hourly earnings disappointed expectations by only increasing 0.1% versus an expected 0.3% increase. Stocks and bonds gained on the jobs report, as job growth without inflation helped support asset valuations.

Over the last several weeks, I have had numerous conversations with market participants who have expressed their concerns about the economy, equity valuations, geopolitical events, tax reform and corporate earnings. I tend to share these concerns and currently view U.S. stocks pricing in relatively positive outcomes on all of these fronts, which leads me to believe we have downside risk to the market.

With that said, over the years I have learned to always be skeptical of my opinions if they are consistent with the market consensus. Consensus expectations can be difficult to derive with precision, but they are essential to determining the risk with any one particular market view as it is potentially already priced into the market. This risk tends to be elevated when uncertainty is elevated. The more in-line with consensus expectations you tend to be, the greater the risk that markets will trade against your view. I am always somewhat skeptical of my own view when it is in-line with consensus, so I do think the potential for equity valuations to rise is greater than what is priced into the market currently.

Tags: Monday Morning O'Malley | Earnings | Employment numbers | Global economy | Economic data | Valuations

< Go to Monday Morning Perspectives

This blog post is for informational use only. The views expressed are those of the author(s), and do not necessarily reflect the views of Penn Mutual Asset Management. This material is not intended to be relied upon as a forecast, research or investment advice, and it is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy.

Any statements about financial and company performance of The Penn Mutual Life Insurance Company or its insurance subsidiaries (each, “Client”) made by the author is provided with a written consent from the Client.  Penn Mutual Asset Management is a wholly owned subsidiary of The Penn Mutual Life Insurance Company.

Opinions and statements of financial market trends that are based on current market conditions constitute judgment of the author and are subject to change without notice.  The information and opinions contained in this material are derived from sources deemed to be reliable but should not be assumed to be accurate or complete.  Statements that reflect projections or expectations of future financial or economic performance of the markets may be considered forward-looking statements.  Actual results may differ significantly.  Any forecasts contained in this material are based on various estimates and assumptions, and there can be no assurance that such estimates or assumptions will prove accurate.

Investing involves risk, including possible loss of principal.  Past performance is no guarantee of future results.  All information referenced in preparation of this material has been obtained from sources believed to be reliable, but accuracy and completeness are not guaranteed. There is no representation or warranty as to the accuracy of the information and Penn Mutual Asset Management shall have no liability for decisions based upon such information.

High-Yield bonds are subject to greater fluctuations in value and risk of loss of income and principal. Investing in higher yielding, lower rated corporate bonds have a greater risk of price fluctuations and loss of principal and income than U.S. Treasury bonds and bills. Government securities offer a higher degree of safety and are guaranteed as to the timely payment of principal and interest if held to maturity.

All trademarks are the property of their respective owners. This material may not be reproduced in whole or in part in any form, or referred to in any other publication, without express written permission.

Subscribe to Our Publications